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Rationalizing Boundedly Rational Choice

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  • Paola Manzini

    (Queen Mary, University of London & IZA)

  • Marco Mariotti

    (Queen Mary, University of London)

Abstract

A Rational Shortlist Method (RSM) translates into economic language some sequential choice heuristics studied in psychology. We show that the use of this boundedly rational procedure can be detected from observed choice data through tests that are very similar to those used to detect `rational' choice (such as Samuelson's WARP). Yet, RSMs are compatible with some highly `irrational' patterns of choice observed in experiments, such as pairwise cycles. We also provide partial results on a generalization of RSMs.

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File URL: http://128.118.178.162/eps/mic/papers/0407/0407005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0407005.

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Length: 26 pages
Date of creation: 12 Jul 2004
Date of revision: 21 Jul 2005
Handle: RePEc:wpa:wuwpmi:0407005

Note: Type of Document - pdf; pages: 26
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Web page: http://128.118.178.162

Related research

Keywords: rationalizability of choice; bounded rationality; intransitive choice; incomplete preferences; menu dependence;

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References

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  1. Gil Kalai & Ariel Rubenstein & Ran Spiegler, 2001. "Rationalizing Choice Functions by Multiple Rationales," Economics Working Papers 0010, Institute for Advanced Study, School of Social Science.
  2. Manzini, Paola & Mariotti, Marco, 2004. "A Vague Theory of Choice over Time," IZA Discussion Papers 1228, Institute for the Study of Labor (IZA).
  3. Baigent, Nick & Gaertner, Wulf, 1996. "Never Choose the Uniquely Largest: A Characterization," Economic Theory, Springer, vol. 8(2), pages 239-49, August.
  4. Amartya Sen, 1996. "Maximization and the Act of Choice," Harvard Institute of Economic Research Working Papers 1766, Harvard - Institute of Economic Research.
  5. Eliaz, Kfir & Ok, Efe A., 2006. "Indifference or indecisiveness? Choice-theoretic foundations of incomplete preferences," Games and Economic Behavior, Elsevier, vol. 56(1), pages 61-86, July.
  6. Wulf Gaertner & Yongsheng Xu, 1999. "On rationalizability of choice functions: A characterization of the median," Social Choice and Welfare, Springer, vol. 16(4), pages 629-638.
  7. Masatlioglu, Yusufcan & Ok, Efe A., 2005. "Rational choice with status quo bias," Journal of Economic Theory, Elsevier, vol. 121(1), pages 1-29, March.
  8. Wulf Gaertner & Yongsheng Xu, 1999. "On the structure of choice under different external references," Economic Theory, Springer, vol. 14(3), pages 609-620.
  9. Moulin, Herve, 1994. "Social choice," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 31, pages 1091-1125 Elsevier.
  10. Klaus Nehring, 1997. "Rational choice and revealed preference without binariness," Social Choice and Welfare, Springer, vol. 14(3), pages 403-425.
  11. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  12. Mandler, Michael, 2005. "Incomplete preferences and rational intransitivity of choice," Games and Economic Behavior, Elsevier, vol. 50(2), pages 255-277, February.
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Citations

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Cited by:
  1. Houy Nicolas, 2007. "Rationality and Order-Dependent Sequential Rationality," Theory and Decision, Springer, vol. 62(2), pages 119-134, March.
  2. Green, Jerry & Hojman, Daniel, 2007. "Choice, Rationality and Welfare Measurement," Working Paper Series rwp07-054, Harvard University, John F. Kennedy School of Government.
  3. Tyson, Christopher J., 2008. "Cognitive constraints, contraction consistency, and the satisficing criterion," Journal of Economic Theory, Elsevier, vol. 138(1), pages 51-70, January.
  4. Manzini, Paola & Mariotti, Marco & Mittone, Luigi, 2006. "Choosing Monetary Sequences: Theory and Experimental Evidence," IZA Discussion Papers 2129, Institute for the Study of Labor (IZA).
  5. SPRUMONT, Yves & EHLERS, Lars, 2005. "Top-Cycle Rationalizability," Cahiers de recherche 25-2005, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  6. Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
  7. Manzini, Paola & Mariotti, Marco, 2006. "Two-Stage Boundedly Rational Choice Procedures: Theory and Experimental Evidence," IZA Discussion Papers 2341, Institute for the Study of Labor (IZA).
  8. Paola Manzini & Marco Mariotti, 2005. "Shortlisting," Public Economics 0503006, EconWPA, revised 14 Jul 2005.

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